Episode 170: Why Net Worth Alone Won’t Get You to Financial Freedom in Canada

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You’re hustling to build wealth, investing in real estate, running your business, and maybe even fantasizing about a peaceful cabin escape. But here’s the question: are your current financial moves bringing you closer to freedom—or quietly costing you years of progress? In this episode, Kyle and Jon unpack a real conversation with a Canadian business owner who seems on track—until the numbers tell a different story.

You’ll discover:

• Why real estate investments that “feel good” can still be cash flow traps
• How to avoid mistaking net worth for true financial freedom
• A framework for evaluating whether your lifestyle goals and investment strategies are actually aligned

Hit play now to learn how to clarify your wealth vision, optimize for cash flow, and build a roadmap that gets you where you really want to go.

Resources:

• Ready to take a deep dive and learn how to generate personal tax free cash flow from your corporation? Enroll in our FREE masterclass here. 
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Discover which phase of wealth creation you are in. Take our quick assessment and you’ll receive a custom wealth-building pathway that matches your phase and learn our CRA compliant tax optimized strategies. Take that assessment here.
• Dig into our Ultimate Investment Book List
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX.  

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting cordporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

Achieving financial freedom in Canada requires more than just saving aggressively—it demands clear vision planning, strategic investment strategies, and a deep understanding of corporate wealth planning. Whether you’re navigating real estate investing in Canada, weighing salary vs dividends, or optimizing your RRSP room, the right Canadian wealth plan blends financial buckets, capital gains strategy, and tax-efficient investing. For business owners, aligning your corporate structure with your long-term financial independence goals is crucial. From property management decisions to balancing personal vs corporate tax planning, building cash flow through diversified assets and passive income planning supports both your modest lifestyle wealth today and your legacy planning for tomorrow. Explore how real estate, financial systems for entrepreneurs, and retirement planning tools can transform your approach to wealth building and secure your financial health for the long run. With expert guidance on Canadian tax strategies, corporation investment strategies, and estate planning, you can confidently move from uncertainty to a robust, sustainable plan for building long-term wealth in Canada.

Transcript:

Jon Orr: What if the dream of financial freedom you’ve been chasing is quietly slipping through your fingers? Not because you’re not working hard, but because the moves you’re making are pulling you further from your goal. In this episode, we’re gonna unpack a story, a Canadian incorporated business owner story who this person thinks he’s investing for the future, but is unknowingly setting himself back a bunch of money every year.

So if you’ve ever wondered whether your second property or your saving strategy or your goals are actually working for you, this episode is a must listen. So let’s get into it.

Kyle Pearce: All right here, John, as you mentioned in the intro, I had a great conversation with a listener of the podcast. So shout out listeners, awesome stuff from the West coast lives close to Vancouver, but also has a cabin out in I’ll call it the wilderness and the beautiful mountains of, of the Rockies. Yeah, definitely. I was, I was quite jealous to be honest, a lot of great things going on.

And what intrigued me about this call right from the get go and we actually had a good conversation through email ahead of the call. So anytime someone books a discovery call, I typically reach out with a handful of questions to get some context here. And if there’s an opportunity, it’s like, like, let’s start hashing them out a little bit before we actually get on a call. And basically, this particular individual was sort of floating with this idea of like they they were aware.

that they have, of all, a primary residence. Quite a bit of equity in this primary residence, especially since the, you know, we’ll call it the COVID boom in the real estate market. So a mortgage against this thing, but you know, I’m gonna say probably about 75 to 80 % equity in this property, which is fantastic. Before COVID, they had actually borrowed against the primary residence.

in order to buy a cabin. This was up in some skiing area. It’s not Whistler, but out near a popular skiing hill. And that was something that they really wanted to do. And they kind of looked at it as sort of a two for one, like this idea. If you listen to some of the early episodes, when I bought my first investment property, my backup plan was secondary home. And I was like, everyone gets the fear of maybe I can’t rent it. And if I can’t rent it,

Well, at least it’s in a spot I didn’t mind. It was Florida. So, you know, I was very excited about that. I feel like they had this idea right from the start. They go, we’re going to do short term rentals here. We’re going to use this thing. And it’s like, if we could like offset some of the costs, it’s kind of a win win. Like it’s an investment in that, you know, we’ve got real estate, which is great. It’s traditionally done very well, especially here in Canada. And we’re able to utilize this property for our family and our lifestyle, which is awesome. So sounds like

a great situation. The problem that they’ve sort of run into along the way here. So the problem isn’t the fact that the values of the properties have bombed and all of those. Those are all good problems to have right. Property values have all gone up, but it’s that this cabin is actually costing them quite a bit out of pocket, which has restrained them from doing a ton of other investing currently. So basically what what they have left over is essentially like $200,000 in our recipes, which is great. But again, it’s sort of like they’re like, we don’t want to be like relying only on the growth of these two properties, which is sort of the strategy that’s going on currently.

Jon Orr: Well, let me ask you this. Let me ask you this. If you buy a cottage or a cabin, because it’s in the woods, you would. I think you would if it wasn’t on a lake, because you’re thinking lake. That’s what cottage to you means, lake. But if you were like, I got this cottage in the woods. Is it not close to a lake? You might say cabin. Anyway.

Kyle Pearce (04:04.015)

Yeah, we don’t call them cabins here in Ontario. I don’t know if that’s like a BC thing. Got it. It’s actually interesting. I never really thought about that. Yeah.

Jon Orr: So let me ask you this, let me ask you this, because you said that he bought, you know, they bought this cabin that they wanted to. And it was like this, in a way, probably this cabin, because they’re renting it out in short-term rentals, this cabin may be costing, you know, double the amount actually like coming out of their, say, expenses, but then they’re cutting that in half with rental income, let’s say, for, okay. So let’s say that, so it’s like,

In a way, people are going, I want to have a cabin, a secondary home, a place I can visit, I can use it for short term rental, sure, that’s bonus, but this is a normal thing. It’s like, can I afford that cabin and make that part of like what I’m really after? And then all of a sudden you’re saying, we’ve got a problem here because it’s cutting into our expenses. Now, my wonder is like, what is the real problem here? Like, is the problem that

I can’t afford it and or is it the problem that I, you know, I’m not, I want it to be breaking even, but it’s not like, where do you feel like you’re saying? Like you’re saying there’s, it’s a problem, but what is the problem?

Kyle Pearce: Yeah. Yeah, it’s great. And that’s basically how this conversation unfolded. And I’ve got some numbers here for you, specifically the cost to maintain this cabin, both mortgage, property tax, and all the expenses and so forth. It’s about $60,000 $65,000 a year. And they earn about $30,000 to $35,000 in rental income. So as you had mentioned, it’s essentially like,

half of the expenses. So on one side, what I hear you saying, and I felt the same way, this was sort of like what was going on in my mind when we had this conversation was like, it sounds like a pretty good deal. If you wanted to buy a secondary home anyway, it’s a great deal, you know, and it sounds like they’re utilizing this this cabin more so than renting it, meaning it’s not like they’re like just to make the 30,000, we only get to use the cottage once or twice a year. It’s like, no, they’re actually able to

Jon Orr: Right, that’s what I’m thinking.

Kyle Pearce: They’re able to do this quite often, pretty much whenever they want, which is fantastic. So huge win. And as we went down this rabbit hole, this individual mid 40s and they were sort of picturing in their mind, they’re like, if now, now here’s the secondary goal. Cause like first goal is we like the idea of a cabin, right? Yeah, absolutely. So I’m like, I got it. Amazing.

Jon Orr: Mmm, I see where this is going. Yes.

Kyle Pearce: Right? Like all things in life, right? Once we have some are like, that was fun. Now what do we want next? And now it’s spend more time in the cabin. So what do I gotta do? Right? What do I gotta do? Well, I do want now they enjoy what they do. This is an incorporated business owner here in Canada. They’ve got a great business going on, but it’s, it’s hands on like he’s in the business, right? He’s not working on the business. He’s working in the business. So he’s picturing going like, enjoy it, but

I would like he had mentioned within the next 10 years to not have to do the business, meaning having that like sort of like we call it financial freedom number. And like you and I talk about this all the time is like, that’s where my mind is at. I don’t ever anticipate myself doing absolutely nothing. I’m just not wired that way. So, but I do want to get to a place where I go, you know what, if I chose not to do anything for the rest of life,

I could and I think this is now creeping into their mind and he’s starting to go, you know, I’ve got two properties, which we anticipate should continue to grow in value. That’s great. But like if I ever get to that place or when I get to that place, if it’s 10 years from now, where’s the income coming from in order to make me feel that way? Like even if let’s say property values went up by 10 % every year consistently for the rest of time,

It’s like, that’s great and all, but it’s like, do I want to leverage against a property? Do I want to sell one of the properties, right? Like this is where the first phase in our wealth planning journey and our pathway that we set up and through the questionnaire we ask people, this is all about vision planning and really getting clear on what it is that I want, because even when I’m financially free, quote unquote, what does that look like for you? And where like, does that mean

having both properties? Do I want to sell one property? Like these are the things that we only know once we have clarity around what does that actually look like if we were to wave the magic wand? We love the magic wand question. And all of a sudden, boom, you were there today. What does life look like? And then we can maybe back map from there.

Jon Orr: Right, for sure, for sure. And I wanna dig into that. guess I’m wondering if like this, sometimes we get into this. We look at say the paperwork. We look at like what does my net worth look like on paper and what am I trying to build towards? So even if you have a vision of like here is my financial freedom number and you haven’t mapped into what the actual.

cash flow looks like. imagine, imagine you’re like, hey, in order for me to generate, if I, if let’s say for second, you’re using a 4 % rule, but you’re factoring in your entire net worth, which means your property. and I feel like this is maybe what he’s done or they’ve done it. And this is common is to go, Hey, on paper, owning this property, owning that property, owning, you know, my, and maybe the business’s value all have contributed to this.

number and if I take 4 % of that number, technically I should be able to retire and live this. I’ve hit a financial freedom number, right? But the problem, right, that you can see this is that that only that only works with like liquid assets with like like investment assets that are sitting and say like, let’s say your RSPs, your tax free savings accounts or any sort of investment account is is those are liquid because you can start draining them like you can start pulling value from them.

got your you know, your dividend investing accounts, like you’re gonna get paid dividends, you can live off that like, like that’s passive income. And maybe his imaginary, like his magician was his, his vision was like, I’m, I’m going to have passive income, but so all these assets accumulate to this value. But then you just have to start selling them or doing something with them to actually get that cash flow. So as options are like what you’re saying is like, okay, if I want to have all of that, and I want to retire early,

I’m not what am I willing to say negotiate here? Am I willing to say sell that property and take the cash and now invest it and then start withdrawing so that it accumulates or it accounts for my passive income source that now I don’t have to work for money because now I’m actually withdrawing the appropriate amount forever. Or am I selling my primary residence to do the exact same thing? You’ve brought up the fact that it’s like I guess you have the option to leverage against this.

pull equity from the properties, and then use that as the value of like, you know, draining that almost like think of reverse mortgage type thing. Or it’s like, here’s the other option is like, have I built my business to a place where I’m now working on the business and not in the business, but it still spits out cash flow or spits out revenue for me to live on, but I don’t have to work so much. Right? Like, like, it all kind of

you have to kind of look at all of this in pieces and going like, have I actually mapped out where this actual cash flow is going to come from if I want to retire early? So I think this is where he is. He’s like, I want retire early. I want my cottage. I want my business. And this is why you said it all boils down to stage one of your financial health, health and wealth plan, which is what are we trying to do?

Like what is it that we wanna try to do? Now, I also wanna preface that your vision, stage one, that the clarity you have can shift. I would recommend, you like you reevaluate every three to five years, where do you wanna go? Where do you wanna go? Is the things I’m doing, you know, helping me get there? And in a way, he might’ve been like, I want the cottage, because we wanna retire in the cottage. But now you have to take that reflection and go, all right, what’s the priority here?

Kyle Pearce: Right, right. I love that. and really what I’m hearing you say, which, which came out through our conversation was the idea that there’s so many options, like he’s got so many options. And the problem is, is you’re not going to know what’s the right option for you until you know what it is specifically that you’re after. So if right from the get-go, it’s like, you know what, if I’m at this place where I’m ready and say 10 years to

only work when I want to work or, know, maybe I do want to continue working, but it’s like, you know what? I’m, I’m, and I’m happy to sell my primary residence and like live full time in this, in this cabin rock and roll. It’s like, you’ve just, you’ve just created yourself the opportunity. Like we can look out and I actually map this out for a, YouTube here, anybody who’s watching, I’ve got this crazy spreadsheet. We’re not going to dig into in any depth or anything, but you can sort of see like some of the things that

you know, we’re going through my mind is like in 10 years, like the primary home is worth 1.8 right now. If inflation’s 3 % and we just assume the property is going up by 3%, his property could be worth about $2.4 million at year 10 or 2.5 million at the start of year 11. And his mortgage, which was at 360, assuming a 20 year amortization, 5 % interest rate.

you know, his mortgage paid down to just about $200,000. He’s got about $2.3 million sitting there in equity that he could release in a moment’s notice. Now I say a moment’s notice, you have to sell the property and all that fun stuff. But that money right there is like, you’ve got a decent chunk of cash that could provide you with an according to his current cashflow numbers.

It would be enough according to a very, simple basic 3 % 4 % rule. That would probably be enough. But if I want to keep my primary residence, what does it now mean, right? So does it mean I’m going to start leveraging against these properties, as you mentioned, reverse mortgage or something else? He did mention that he had this interest of potentially repurposing some debt equity. Obviously, listener of the podcast knows that.

Right now he’s got a primary worth 1.8 million. He’s only got about 360 owing on. He’s got like $1.4 million of equity in that thing. Could I refinance that and maybe put it into another investment? And in his mind, it was like, I want to do more real estate, which I think could be a great, great move here. My only caution for him was what are we going to do? And like, do you have any real estate in mind that pencils meaning

isn’t going to create more of a cash flow negative problem because we already have a cash flow negative problem, right? So he was like student rentals. That’s like where, you know, it’s always cash flow positive. It’s great and all. And I was like, okay, now this introduces a whole new, you know, a whole new rabbit hole of

What is what goes into student rentals is a lot different than what goes into, you know, set and forget sort of, you know, tidy turnkey property that, you know, you have a long term tenant that goes in there and you’re hoping is cashflow positive.

Jon Orr: Well, he’s used to short term rentals, though, you know, so maybe, you know, in a way, you, it’s not too far off from say, managing short term rentals, because that’s a lot of legwork right there to to kind of continually monitor and do that, do that. you know, that that like you’re saying, I think it’s, it’s, could be a good option. But I think I think the you’re saying the big idea here is to not to make sure that you’re you’re giving yourself like this.

this buffer room for risk and error, right? So it’s like, okay, I’m going to try something new. And therefore, I’m going to go down this vent, this this path. And my goal is to generate cash flow and equity and I got my mortgage paid out like I’m getting I’m building my wealth through this option on real estate. But is it actually serving my bigger vision and goal? Like, am I actually going to have more time because I’m now managing that plus my short term rental?

Plus I have a business to run. Am I actually getting closer to what I’m actually achieving? Because what I heard you say at the beginning of this call is like this family, this couple wanted to have this cottage and we were like, let’s maybe transition, like we wanna use it. And so it’s like, is that what you really want? Like is that what five years looks like for you that you’re now managing all these pieces? Because if you said you wanted to retire early,

Is that what you’re imagining retirement looks like? Because if it is, then rock and roll, you know? But if it isn’t, then you might want to rethink your pathway.

Kyle Pearce: 100%. Yep. 100%. And, you know, I think the, the, the part that intrigued me about the conversation and they’ll, you know, the big takeaway that this particular listener had walked away with was, you know, there’s some, some thinking around the vision part, that first stage that they’re going to have to do. And then once they have that, we can then start looking at the other stages, right. And start talking about say the wealth reservoir, for example, because that’s sort of the area that came up when we talked about

leveraging more to buy more real estate is okay. What does that do or how does that alter your wealth reservoir? Is there enough there that will not put you in a bad situation? Like we don’t want to go more cashflow negative. We don’t want a big, you know, repair or capital expenditure on this new property that is going to put you in a worse position, right? From a cashflow perspective. we have to just be cautious and then

as we filter down and we get all the way down, the last one ends up being about legacy and estate. And we start looking there and we go, shoot. You know, when I did my vision planning, I was picturing for like retirement and I was picturing to solve that problem. But now I have to start thinking about, guess what? When you get to retirement, then if you haven’t thought about legacy and estate planning, all of a sudden that creeps in and you go, shoot, I thought I was on track.

to get the exact retirement plan I was after, but then I forgot about the kids. They have a couple kids and I forgot about what I want to see happening over that time period. Here’s this aspect that as you get deeper and you clarify your vision, we start to then ask questions like, when you retire, how will you feel when you see your pile, as we call it, when you see the pile, do you want that pile to continue growing?

Maybe it’s at a lower clip. Do you wanna see that pile stay the same or are you actually planning for that pile to decumulate and watch the pile go down over time? The traditional retirement plan is focused on decumulation, which would mean not running out of money. The 4 % rule is based on the idea of hopefully not running out of money. Well, guess what? The reality of that is, is that if I follow a traditional 4 % rule,

then what you’re saying is you’re okay to see the pile slowly fall over time. And that as long as the pile doesn’t turn into nothing, you’re happy. But the reality is, is most of us are human last night checked and most of us actually don’t feel good about watching that pile that we worked our entire life to grow. Like think of it. So many incorporated business owners that listen to this show. Imagine you’re you’ve been working towards your business like

When they get to that place where they’re finally ready to maybe sell the business, a lot of times business owners get this like, I’ve been working my whole life for this. I don’t want to see it go. And that’s for money. So imagine if you’re watching this thing, this pile that you’ve grown and you’ve spent your entire life to get to. And then now it’s like based on all of your planning, it was to see that pile slowly fall and slowly to accumulate over time and potentially leave with very little or nothing.

for the next generation. That is just an oversight in our, as you mentioned, John, you said you have to come back to the vision planning and it’s about reiterating that and going back and iterating through to say, shoot, what about this? What about that? And have I actually taken the steps to get myself prepared so that I can, what we like to call it, have your cake and eat it too, right? We want to be able to have a great retirement, but we also don’t want to get there and go, This isn’t what I thought I was going to be signed up for.

Jon Orr: Yeah, like, when we think about the four stages, you know, I like this, this person’s age, I’d like to see a person of his age have grades like A, A, B, C, in the four stages. So designing a vision and freedom stage one, we want an A, which means I think for his work lies there is being clear on what does five years look like? What does 10 years look like? Do I have a reverse engineered map?

to get me to those places? I really, because I think there’s a miscommunication, an unclear path of like, what do I really want five years to be? Because it’s like, we got all these pieces. I got a lot of pieces, but I don’t know what puzzle I’m actually building. So we want to clarify the puzzle. I don’t know what the box looks like. I would say he’s in the B land in there. Now, stage two, you said the wealth reservoir. This is our access to capital. He’s…

position better than say most people here because he’s he’s got you know, access to his his equity and the different properties he’s he’s he’s looking to do a little bit more in real estate, I’d say he’s still be in this land, but we’d want him to say all of a sudden go like, let’s let’s use some of the leverage the way that we need to lose the leverage to say maybe a maybe go down that route with another real estate properties or start working towards those goals. But again, you got to define what those goals look like. But making sure that you’ve got that

you’ve got that margin of safety mapped out. Stage three, optimizing your wealth plan. So this is like, are the pieces? How am I optimizing my pieces? He’s got active real estate income that’s coming in. He’s equity rich in these properties, but cash flow poor. And I think he needs a little bit more optimization in trying to shuffle to get a little bit more cash flow rich.

and get a little bit more balance there. So I think he’s got like a sea living in this land. Again, his age, I think B is where you want to be. And why I say his age, because I think these things change as you get older where you are, because you’re doing learning, you’re doing applying, you’re thinking about this. At his age, stage four is about legacy and estate strategy. You’ve been just talking about that. I think he’s in a sea land here.

but we like people at his age to be at a B because you’re starting to plan for this. A lot of times it’s like we get all of these first three things in place and then we realize, yeah, a state strategy and legacy is a major thing that I haven’t been optimizing for, especially tax purposes wise. So we wanna move him to that B land from where he is.

Kyle Pearce: Yeah. And as this develops, the big piece and the big takeaway is like, as things get more clear, you get to be able to take advantage of more optimization options, right? So when we talk about some of these like leverage strategies and, know, incorporating, when we incorporate permanent insurance, for example, higher early cash value, it’s like, we kind of get, we get to improve the grade in multiple areas here because it’s like, we get to put money into an asset, reuse that asset. so that we can purchase other cash flowing assets while also helping us out on the legacy side of things.

Jon Orr: and vision because you have to be clear. Like this is the part, it’s like people who make use of that tool are clear on what the next five years, 10 years look like. And when you have that clarity, like it actually helps you get more clear because you’re like, I’m hearing the benefits, I know the benefits of like using this tool to optimize my reservoir and my structure. And then when we have conversations with our clients, we have to help them get clear on what is it we’re really trying to do? And then all of sudden the clarity is there. And then now you’ve just fully mapped out all four stages.

Kyle Pearce: 100%. So with this particular discovery call, awesome listener reached out. The goal was to get some big takeaways. And I think they walked away with some big takeaways as they articulated, which is that they have some thinking to do. And luckily they have time, right? They have this 10 year runway that they’re going, okay, let’s get more clear around what it is that we really want that goal to look like and sound like. and then from there,

we can then start developing a strategy and we can start working on some of those grades and know, stages two, three, and four. If you’re interested in learning a little bit more about where you are along your own wealth building journey, head on over to Canadian wealth secrets.com forward slash discovery. And you’ll be able to walk through our questionnaire, which is like a mini little assessment to kind of get you a sense as to where things are going well for you.

and where you might want to focus your attention next. And of course, if the timing is right, feel free to book a discovery call where we can go through your scenario a little bit more nuanced. We appreciate you listening and my friends, we can’t wait to hang out with you in our next episode. Take care.

Jon Orr: Just as a reminder, the content you heard here today is for informational purposes only. Should not construe any such information or other materials, legal tax, investment, financial, or other advice. Kyle Pearce is a licensed life and accident and sickness insurance agent and the president of Corporate Wealth Management with Canadian Wealth Secrets. Thanks everybody, take care.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance.

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